Robert Kleinhenz

Los Angeles County’s chief economist talked Friday about the potential impact of the fiscal cliff if the United States were to take the plunge, while discussing the state of the county’s economy.

The overall economic outlook is a positive one, said Robert Kleinhenz of the Kyser Center for Economic Research, especially compared to where the economy was situated three years ago.

While year-over-year gains are positive, the economy is certainly not out of the woods, yet, or exactly at a point where economists are comfortable touting growth, he said.

“Jobs have been added at a slightly higher rate than the rest of the nation, but the county is slightly behind the state,” Kleinhenz said. “Yes, we’re making progress, but we’re still at a rate that’s too close for comfort.”

Ultimately, the very nature of a trip off the “fiscal cliff” – a term coined by economists to describe lawmakers’ end-of-the-year conundrum involving the expiration of Bush-era tax cuts that are expected to be compounded by tax increases associated with the Affordable Health Care Act and the implementation of sweeping spending cuts – will unavoidably impact consumer spending, Kleinhenz explained.

“If we go over the cliff and we see those cuts, you’re going to see a pullback effect that’s going to affect a lot of residents,” he said.

“We should be prepared for a pullback in government spending, and whether or not (drastic cuts) come to pass depends on what Congress does over the next few weeks,” Kleinhenz said.

He added that some of the damage has already been done as he’s been hearing – anecdotally, from leaders in private industries in sectors heavily affected by government spending, such as the military – that the uncertainty has prompted them to make cuts and hold off on growth.

The construction sector has seen some gains, but it’s also an industry that could have a bit of a slog into 2013, Kleinhenz said.

“In terms of housing, and in terms of construction we’ve seen stronger activitiy on the non-residential side,” he said. “Looking at this report, we’re down marginally on a month-over-month and year-over-year basis. That section continues to be weak and has a long way to go.”

However, there are several positive signs, Kleinhenz said.

The durable and nondurable goods manufacturing  has increased in the United States, reversing a trend that has seen thousands of jobs head overseas. Among the more prominent gains, Apple announced it would be bringing more jobs to a new facility in California at a location yet to be announced.

Kleinhenz attributed these figures to several factors that favor American job growth.

“Changes in the exchange rate, and the fact that the cost of labor is rising in so many places, Asia and China, specifically, meaning the cost of producing in those countries has gone up as the cost of living and wages there have improved in those areas,” Kleinhenz said.

The auto industry, which has a big impact locally, has also seen some positive signs, he said.

“It’s noteworthy that we’ve seen some gains with auto dealers,” he said. “It’s one of the areas we expect to see very big gains by the end of 2012, probably beating the expectation for most auto analysts.”